An Special Report


User Base Expanding; Online Marketers See Some Light

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NEW YORK ( -- For Bill Kenney, vice president of emerging home solutions at Sears, Roebuck & Co., broadband Internet service offers the potential to take the retailer's slogan
User Base Expanding; Online Marketers See Some Light

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from "Sears. Where else?" to Sears nearly everywhere else.

"Broadband is a big deal," Mr. Kenney said, but"we just need to find the right applications for the consumer." While Sears won't make a major commitment to broadband until there is significant demand, the retailer has begun strategizing on such possibilities as selling high-definition digital TVs with Internet subscription services and Kenmore appliances that enable consumers to monitor them remotely.

Take a fresh look
Marketers have good reason to take a fresh look at broadband -- even as they have every reason to be skeptical. Broadband refers to the technology that delivers interactive TV, video-on-demand and high-speed Internet service using a high-bandwidth service into the home. Technology evangelists and content providers have hailed the potential of broadband for the last decade. Now it appears that potential is beginning to be become a reality -- at least for the high-speed Internet.

In a major milestone in January, combined at-work and at-home broadband Internet usage outpaced dial-up usage for the first time: Broadband users logged 1.19 billion hours, accounting for 51% of the 2.3 billion hours spent online, according to Nielsen/NetRatings.

By analysts' estimates, there were 10 million U.S. households at year-end 2001 with broadband Internet service. With 107 million U.S. households, 63% of which have Internet connections, 10 million have at-home broadband service.

At-work broadbanders
Less obvious but perhaps more significant for online marketers is the larger at-work broadband crowd. For instance, 60% of the 35 million users who access the news site do so through broadband hookups, according to's chief

Photo: MSNBC's chief technology officer, Steve White, said broadband users visit more often.
technology officer, Steve White. And connection speed is not all that makes these users different.

"We've found that the broadband users make four times more visits to our site than those who come through dial-up," Mr. White said. "Clearly, they're much more engaged with our content. Secondly, the latest study done for us by Market Facts Inc. found that broadband users on our site are watching streaming videos 4.1 times a month vs. 1.3 times a month for dial-up users. So they tend to be far more involved in the kinds of rich media features that many see as the real future of online advertising."'s vice president of business operations, Uli Haller, said two marketers who recently placed ads aimed specificially at the site's broadband users were Intel and As part of larger cross-platform campaigns, both wanted to push streaming ads at online audiences equipped to view them.

At-home broadband use
The at-home consumer broadband audience is slowly approaching a critical mass more slowly for marketers. By year-end, 20% of Internet households with have broadband, according to Jupiter Media Metrix.

Another broadband booster, AOL Time Warner's America Online, concedes the long road ahead for broadband. "It really has not cracked into the consumer space, nor do we believe that this

AOL CEO Barry Schuler: 'Going to be a slow upgrade process.'
dam is going to break open," said America Online Chairman-CEO Barry Schuler. "It's going to be a slow upgrade process over the next five years. We think the model is to continue to focus on the growth of narrowband [dial-up service]. The vast majority of people will [ultimately] upgrade from narrowband to broadband."

Even now, marketers cannot afford to ignore the broadband consumer, who is generally more affluent, tech-savvy and not only spends more time online but more money as well. Broadband consumers spend 67% more per person on e-commerce than dail-up users, according to Nielsen/NetRatings.

"Increasingly, online business models will be built and marketed with the broadband surfer in mind," noted Jarvis Mak, senior Internet media analyst for Nielsen/NetRatings, in a report last month.

Interesting opportunities
"There are potentially interesting marketing opportunities around the always-on connection-instant messaging and screen savers," said Jupiter senior analyst Joe Laszlo. "Broadband early on is mainly going to be about branding. It opens the door to richer branding opportunities than existed in the narrowband [dial-up] world."

Some marketers are already plotting their next steps. E-Trade Group, for example, is counting on broadband service to deliver information and data more effectively. E-Trade this year redesigned its Web site to connect brokerage, banking and financial-planning functions, including streaming stock quotes, audio and video, and on-screen help.

Retailers' short-term goals
Many marketers, however, have yet to find a compelling proposition

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in broadband. Retailers tend to be tightly focused on short-term revenue goals rather than R&D efforts focused on the longer-term future, said Scott Silverman, executive director of the National Retail Federation's

For its part, Sears is working with the Internet Home Alliance, which includes General Motors Corp., Sun Microsystems and Matsushita Electric Corp. of America's Panasonic, to develop broadband pilot projects revolving around the networked home.

Apart from speedy downloads of brochures, product information or coupons, marketers are finding other ways to use broadband. For example, Ford Motor Co.'s Volvo Cars of North America already offers a tour through a virtual showroom via its partnership with Microsoft Corp.'s MSN service. The company is considering adding exclusive content and services for broadband subscribers on MSN and on AOL, with which it also has an alliance.

Games and sweepstakes
Streaming audio and video over broadband helped BMW of North America gain brand recognition for its unique made-for-the-Web films ( Increasingly, movie studios offer theatrical trailers, enriched over broadband connections, to give consumers a cinematic experience even before they enter the theater. Marketers have also created online games and sweepstakes to promote their brands via the high-speed Net.

For marketers, broadband is an option. For Internet companies, it is an imperative: They have no choice except to persuade consumers, and marketers, to buy in.

No company has more riding on the broadband ramp than AOL Time Warner. America Online's Mr. Schuler said that of AOL's 34 million subscribers, 3.5 million members access AOL through broadband via cable, DSL and other services. AOL is making its service available to run on top of any high-speed Internet connection regardless of brand or technology.

Time Warner Cable, meanwhile, is aggressively promoting broadband Internet in concert with AOL High-Speed Broadband and sibling Road Runner as well as independent Internet service providers such as EarthLink.

A 'show me' product
"We're working with every ISP on marketing tactics and approaches to this service. We have multiple marketing approaches," said Chris Bogart, president-CEO of Time Warner Cable Ventures. Time Warner Cable has 12.8 million cable subscribers and has signed up more than 2 million of them to broadband, Mr. Bogart said. "This is still very early days for this product," he said. "Broadband is one of those 'show me' products."

AOL Time Warner, the world's biggest media company, is betting big on broadband to deliver its vast portfolio of content -- magazines, music, cable network programming, movies -- to drive future revenue growth. It hopes to accomplish this, in part, by packaging premium-service bundles, on-demand content and exclusive events through which it can rack up incremental subscription revenue. It's an approach not unlike that of the cable industry in its infancy and digital satellite TV providers in the mid-'90s.

But getting there won't be easy. AOL Time Warner faces the thorny task of maintaining AOL's slow-growing dial-up cash-cow business while transitioning subscribers to broadband. Only then does it make sense for AOL to sell premium subscription services and other exclusive content that uses the full capabilities of service.

AOL MusicNet
AOL is testing one such offering: AOL MusicNet, a $9.95-a-month subscription music service over broadband. It's also luring broadband users with extra goodies. This summer, subscribers to AOL High-Speed Broadband will get access to a weekly ad-supported series of musical performances and interviews before AOL lets in dial-up customers.

Some Wall Street analysts are nervous about AOL's transition to broadband. It will be "more difficult and costly than originally anticipated," said Lehman Brothers analyst Holly Becker in a recent report. Her report attributed AOL's slow progress to its lack of success in locking up deals with cable companies other than sibling Time Warner Cable. AOL's plight is not helped by the pending merger of AT&T Broadband and Comcast Corp., which will create the nation's largest cable company with 22 million subscribers.

The question remains whether the mass of consumers will pay a hefty premium for broadband, which at about $40 to $55 a month can be more than double AOL's standard $23.90 dial-up charge. Consumer Reports' May issue offers 50 tips for saving money. No. 41: "Return to a dial-up connection for your Internet service provider unless you need a fast connection for your work."

To become wholly mainstream, industry watchers say, broadband will have to be less expensive or be part of a package that includes long distance, cable and even wireless and calling services.

Mark Kersey, a broadband-industry analyst for technology-market researcher ARS, contends price is not the key issue holding back broadband. Said Mr. Kersey: "The lack of truly compelling content has been probably the single largest impediment to widespread adoption of broadband service."
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Mercedes M. Cardona, Alize Z. Cuneo and Hoag Levins contributed to this report.

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